As trading opened on the London stock exchange on Wednesday, the shares of M&P plc (MNG) advanced by 9%. Yesterday the stock close at 127.3p, however today the price climbed to 138.7p. The move came as the company announced it will pay £410 million in dividends to shareholders. This will include an ordinary dividend of 11.92p per share, as well as a special one at 3.85p per share.
As a result of the economic downturn, caused by the outbreak of the COVID-19 pandemic, many banks, and other financial institutions suspended their dividend payments altogether. So it is surprising, that M&G management still managed to return money to its shareholders during those financially challenging times.
M&G is the international savings and investment management firm. It was founded back in 1931, as Municipal&General securities company. According to the annual report, by the end of 2019 M&G had £352 billion’s worth of total assets under its management. In 2018 this number stood at £321 billion. Consequently, in just one year period, the firm managed to add £31 billion to its funds and increase its size by 9.7%. So the company has rapidly expanded its holdings over the years. At the same time in 2019, the firm posted a net profit worth of £1,065 million, which was 31.3% higher than a year ago.
Obviously, the outbreak of COVID-19 pandemic and subsequent economic downturn had a very negative effect on M&G’s earnings as well. During March 2020, the stock market crashed. In fact, many US and UK company’s shares are still trading well below February levels. As a result, as of 31st of March, 2020, the total value of assets under M&G’s management fell to £323. This essentially erased most of the gains the firm made back in 2019. However, if the recovery in the stock market persists, than M&G might be well-positioned to regain those losses.
How Far is M&G’s Stock from February Levels?
The shares of M&G have risen steadily before the outbreak of the COVID-19 pandemic. In October, the price was close to 200p, however, by February 2020 it reached 250p. As the stock market fell dramatically in March, M&G shares also collapse all the way down to 94p. After this initial panic selling, the market started to settle down. in fact, the stock regained some of its losses and nowadays trades close to 138p.
The current dividend yield of M&G shares is 8.6%. This seems quite attractive, especially considering the current near-zero interest rate policies adopted by the US Federal Reserve and Bank of England. Instead of locking away their savings for 0.1% or 0.25% return, some investors might find such dividend-paying stocks more attractive. The only issue here is that M&G does not have a long history of making consistent payouts to shareholders. Consequently, at this stage, it is difficult to predict whether, the company will be able to keep up with those payments with the years to come.
According to CNBC, the earnings per share of the firm stands at 40.9p. Consequently, the price to earnings ratio is around 3.4. This suggests that the stock can be significantly undervalued. So for many investors, M&G shares might be attractive for both for its high dividend yield and P/E valuation.